Stocks rally despite Hormuz risks as Barclays weighs durability of gains

Investing.com -- Barclays told clients in a note on Tuesday that the unusual post-ceasefire market backdrop, where equities continue to climb even as oil rises, may prove difficult to sustain, warning that investors are “trading a flimsy equilibrium.”

Analyst Stefano Pascale stated in a note that “the old playbook of oil up = equities down has cracked post-ceasefire, with stocks rallying even as Hormuz risks lift oil.”

But Barclays cautioned that “this is a flimsy equilibrium as stagflationary pressure keeps on building.”

Barclays noted that the breakdown in peace talks “has not reignited the war,” but said U.S. naval enforcement risks are tightening oil supply and leaving risk assets highly exposed to adverse headlines.

While a “near-term grind-higher in equities remains possible if the ceasefire holds and earnings surprise to the upside,” the bank said the window “looks inherently unstable.”

Pascale recommended investors “stay humble” and trade upside tactically through low-cost structures that take advantage of “near-record negative oil/equity correlation.”

Barclays also advised that the recent drop in volatility and rapid equity rebound present a chance to reload hedges.

Meanwhile, the bank believes options markets are pricing “elevated earnings risk” ahead of the first-quarter reporting season, with implied moves at 5.8%, the third highest in more than a decade.

You May Also Be Interested In

• 'Ocean of opportunity': Wolfe initiates SpaceX at Buy ahead of historic IPO
• AMD "emerging as a legit second source in the GPU market" says Citi
• Adobe hit by multiple downgrades after ARR concerns, CFO departure